Use the Stock Market Crash to Sell Home Homes

Here’s a question you’re unlikely to hear asked in real estate companies these days: Is the stock market drop a GOOD or BAD thing for the housing industry’s current slump? At a time when nobody seems to have the answers – not the Fed, not Congress, not the Detroit auto makers – to turn around the economy, could it be that the market itself has found a way to revive the housing industry and jump start the economy.

And all it takes is a good, old fashioned market crash?

So is the market’s crash this fall really good for selling real estate? Well, If you’re a true contrarian, and don’t just go with the knee-jerk reaction, you know the answer is ……. the Crash is good for real estate sales. Yes, that’s right: it’s GOOD!

Now, the reason:

What does it mean when the stock market loses 400 or 500 points in a day? It means somebody – a lot of somebodies, actually – is selling stock, right? That means they are turning STOCK into CASH.

Now, what are they going to do with that cash? Put it in:

a) the Bank?

b) more Stocks?

c) under their Pillow?

Answer: d) None of the Above!

It the economy is in worrisome times, and people are pulling out of Stocks, especially out of BANKING stocks (which are the big sell offs this week) they certainly aren’t just “depositing” the cash into accounts that could be at risk of disappearing with the bank itself. And they’re not buying more stock, because most stock is falling faster than inflation is devaluing the currency (yes, it’s hard to believe, considering our inflation is so high).

But savvy investors know exactly what they are doing. They are moving capital to safe havens. They are willing to take minimal growth – like fractional-interest Treasury bills – rather than continue to take a pounding in the stock markets. And they most certainly aren’t feeling “confident” in the FDIC, Treasury or Federal Reserve – so putting it in the bank is out, too.

Therefore, the ONLY sensible investment for the capital is …. drum roll, please….. real estate.

And whomever is buying these homes is using CASH – since banks aren’t lending, right? Cash transferred from selling stock – which is exactly where REALTORS should be focused today to turn the industry (and the greater economy) around.

The key is to be in contact with past and current clients who have substantial stock holdings they are converting into cash. And to prospect for those people who are selling stock today, too. They are ripe for a SAFE investment – and real estate is second ONLY to gold in safety. Remember, the average 5 year return on real estate is 25% (for every five years since 1980) and if you look at it from a DOWNPAYMENT risk perspective, it’s 225% return every 5 years on most investments (Harvard Study, see NAR)

Every great fortune in history is based upon real estate. Most were started during recessions, too. In the last century, every boom has started with real estate – even the dot-com boom which relied upon rising real estate appreciations to create excess capital that could be diverted into other industries, notably technology).

Now, this poses some “challenges” to current thinking. It means that the industry REVIVAL will NOT be coming from Gen X – because they don’t have much stock holding, even though they are the move-up buyer at this point in their age-bracket. Rather, it means there’s likely to be a “second” wave of wealth re-investment from the Baby Boomers, who fuelled the last boomlet as well. They will provide the capital – because it’s their retirement investments that are being converted into cash right now. For example, check out this California news story…

BUT! They won’t be the “only pathway” to that capital. Instead, it could be their children – the Echo Boomers – who will have access to the cash. The “early” boomers (over 60) have already completed their “last home” purchase process in the last decade; but the “late” boomers (45 to 60) that were nearing retirement (or just a big segment of stock investors in the last twenty years) are the ones selling stocks, converting cash, and looking to reinvest it.

Boomers are creating the cash to revive the housing industry from their stock sales – to be used as “downpayment” assistance to their children. As vacation homes. As rental property to substitute for their 401ks which won’t be enough to retire on in the future.

So don’t get down as the market keeps falling. It’s actually a sign that the CASH people need to buy homes is being GENERATED through commodity/equity sales of stock. If the BANKS won’t LEND it, then the capital has to come from somewhere. The markets always keep moving; the proof is the 5 million transactions we will STILL have this year. That’s the historical norm for three decades; and it means the market is fine (really; just not able to support 1 million REALTORS, that’s all).

To summarize:

1. Falling stock markets mean CASH is flowing OUT of Wall Street and onto Main Street.

2. Poor options in stocks, banking, corporate bonds and currencies mean the cash has to seek other returns.

You are absolutely right !! Most of my clients are HNI’s (high networth individuals) who are buying 2nd homes with me here in Marbella, Spain on the Med. I was having this exact conversation with many of my clients back in Sept as where to best park a million or more. Unlike US banks with FDIC guarantees, European banks at the time had very low deposits guarantees which meant you had to deposit your money into multiple accounts(Spain approx 20,000 euros per account holder, now just revised to 100k). I was advising clients to buy property while it was on the down and what better way to enjoy their money 🙂 These days no one trust banks or the stockmarket, so I predict lots of so called Lifestyle Property Purchases instead of bank accounts in my market. All that cash definately needs a safe home 😉

You are absolutely right !! Most of my clients are HNI’s (high networth individuals) who are buying 2nd homes with me here in Marbella, Spain on the Med. I was having this exact conversation with many of my clients back in Sept as where to best park a million or more. Unlike US banks with FDIC guarantees, European banks at the time had very low deposits guarantees which meant you had to deposit your money into multiple accounts(Spain approx 20,000 euros per account holder, now just revised to 100k). I was advising clients to buy property while it was on the down and what better way to enjoy their money 🙂 These days no one trust banks or the stockmarket, so I predict lots of so called Lifestyle Property Purchases instead of bank accounts in my market. All that cash definately needs a safe home 😉

Matthew Ferrara

John:
Thanks for your post. I would ABSOLUTELY buy GOLD (and have been for a few weeks myself). However, diversification is always key – so if I cleared out a few tens of thousands from the stock market, I’d put a sizable chunk into both!

– Matthew

Matthew Ferrara

John:
Thanks for your post. I would ABSOLUTELY buy GOLD (and have been for a few weeks myself). However, diversification is always key – so if I cleared out a few tens of thousands from the stock market, I’d put a sizable chunk into both!

– Matthew

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